What happens if a debtor dies during his or her chapter 7 bankruptcy?  You may be wondering why it matters at all because whatever happens won’t affect the deceased person.  However, the debtor’s death still has consequences for his or her survivors. Read on to find out how survivors are affected and what options are available to them.

How Does Death Affect Debts?

When people die, their debts are not passed on to their heirs unless it was a joint debt to begin with. However, creditors can still look to the deceased debtor’s estate and property to satisfy the debtor's obligations. This can affect how much property the survivors and heirs of the deceased will receive.  So it is important to determine what will happen to the bankruptcy after the debtor’s death.

What Happens to a Bankruptcy Case When a Debtor Dies?

A bankruptcy does not get automatically dismissed if the debtor dies.  Instead, how the bankruptcy proceeds depends on whether it was a Chapter 7 or a Chapter 13 case.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is usually unaffected by the death of the debtor.  This is because Chapter 7 bankruptcies are liquidations and the trustee is the one responsible for making sure creditors get paid. The debtor is not really necessary for administration of the case once it's underway. The trustee will continue to administer the case as if the death never happened, usually resulting in a discharge. 


A Notice of Debtor's Death should be filed with the court in the event of a debtor's death. The attorney or other designated representative may sign this document.   The filing of a Notice of Debtor's Death does not automatically terminate the case. It will continue to be administered for the benefit of the deceased debtor's estate unless a Motion to Dismiss is filed.

 

Will a decedent’s estate be opened?  If so the administrator of the probate estate (or, if there is none, the next-of-kin) needs to go to bankruptcy court and be appointed as a next friend. That will allow someone else to appear at the meeting of creditors on the debtor’s behalf. 

 

See:

 

Bankruptcy Rule 1016. Death or Incompetency of Debtor

 

Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer's debt adjustment, or individual's debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.